Options Trader: Thursday Outlook

Ouch - the GDP came in lower than expected at 1.9%.

1.9% would be good but not when the government gave away $168Bn to get it there.  Q1 GDP was revised down to 0.9%, down 0.1% from what was previously reported.  The personal consumption price index was up 4.2%, increasing from 3.6% last quarter but the PCE, excluding food and energy (which no one who matters needs) fell to just 2.1% from 2.3% last quarter so mission accomplished, boys!

Of course, with this government, it’s always worse than you think and the Commerce Department is NOW ready to admit that Q4 GDP was ACTUALLY MINUS 0.2%, not the plus 0.6% previously reported.  Revisions like that damage the credibility of our government and cause foreign investors to lose faith in our economy and our currency.  You cannot play games with facts for political ends!  Forecasts for this quarter were for a 2.3% GDP, that would be 2.1% higher than Q4 and would have been a big relief but, because the government lied about the fourth quarter, the 2.5% jump in GDP from -0.2% (which is more than the 1.5% jump forecast from 0.6%) is being seen as a failure.

You can fool all of the people some of the time (2000 elections) and you can fool some of the people all of the time (hard-core Republican voters) but you can’t fool all of the people all of the time (record low approval ratings).  Economic data is certainly no place to fool around, especially by an administration that likes to play doctor with the economy when the data we’re working with is statistically worse than what you would expect from a random number generator.

Speaking of random numbers, 448,000 jobless claims is the real damage this morning, up 10% from last week and clearly in recessionary territory.  Now this number is OVER stated as the government moved to enroll workers in a new extended Federal benefits program and found a percentage of those people qualified for regular benefits and added them to the rolls.  The 4-week moving average of claims rose 11,000 to 393,000, just a touch under the 400,000 panic level.  State unemployment, a better indicator, rose 0.6% to 3.28M and the 4-week average of continuing claims rose 42,750 to 3.17M. 

Just because we think it’s an overreaction doesn’t mean we shouldn’t react.  We uncovered callers yesterday with the Dow down at 11,400 and we need that level to hold on the morning dip or we’re going to have to re-cover with lower calls.  The financials will take a big hit but we’re still over covered there as those callers were certainly not the ones we were ahead on!  Oil is, amazingly up as Exxon  Mobile (XOM) et al celebrate the Billions of dollars they are making off the suffering of the American people but at least that indicates that they see that the economy is stronger than the numbers are indicating today.

Asia was flat this morning, not knowing what to make of our day yesterday, and Europe had been up nicely until our GDP and jobless numbers came out and now they are diving too.   Most of oils gains at the moment can be attributed to a sharp drop in the dollar.

The only thing I know for sure is I’m buying Google (GOOG) $480s this morning.  I don’t think I will buy any index puts unless we break below 11,400, in which case I’ll probably grab in the money DIA puts ($117s?) as momentum plays, but I’m not particularly freaked out by these numbers and the only thing that can really break my spirit is $130 oil again - let’s hope that doesn’t happen…

Comments

[Al Rob:]

"clearly in recessionary territory"

and nothing matters more than that.

2008 Jul 31 04:20 PM

[CoverIsBetter:]

Were those GOOG 480 Calls? Or Puts? That thing looked scary at the close today. Still loving that WM strategy you outlined earlier.

2008 Jul 31 08:44 PM

[Philip Davis:]

GOOG - they were calls but just a quick day trade we're out of already (and now back in at the close!). WM - that got complicated, we bought back our callers on a dip and now stopped out of the calls and just have the puts we sold, that we are not too worried about. This market is crazy!

2008 Jul 31 10:11 PM

[JOETRADER:]

IS GOOG POSITION A SPREAD OR JUST A STRAIGHT CALL?

2008 Aug 01 08:59 AM

[sf94127:]

I surveyed GOOG options and I see puts with premiums in the range $35-$55 at strike prices less then $500. The volume is not that high or low. Are these hedges against long positions in GOOG stock? I find it hard to believe GOOG won't break out past $500 by October.

2008 Aug 02 09:59 PM

[sf94127:]

I should add my review of GOOG options concludes price is pinned at 480 or 470. I'm new to options so other opinions welcome.

2008 Aug 03 02:18 PM

[jjason:]

Phil, You write some very good articles. I cannot understand why anyone would want to be an options trader.

I have done some trading in common stocks and I find it is a lot of work. Making money in the stock market is not easy...especially when there is so much speculation going on.

By the way, I see this week that HR6604, The Commodity Markets Transparency and Accountability Act passed the House and a Senate Bill regarding the prohibition of oil speculating did not pass.

So Congress is now on vacation and oil speculators will have another two months ( or more ) to keep cheating us.

Go to:

www.stopoilspeculation.../

to sign the petition.

2008 Aug 04 07:28 AM

[Philip Davis:]

SF94... - We agree GOOG is pinned for the month. We took a buttefly to that effect today, expecting them to hold $465 but have trouble getting over $485 by expiration. Today's finish was very depressing though.

JJason - Excellent site, thank goodness people are able to let Congress know how we feel about things!

2008 Aug 04 05:19 PM

[sf94127:]

Phil-
Thanks, it amazes me people will spend that much money on a put.
Gene Muenster, Piper Jaffray, has been quite bullish on GOOGLE but believes it will trade sidewys thru August. The YHOO-MSFT collapse had no poistive impact on Google which surprised me.
SF94127

2008 Aug 04 07:58 PM